DeFi Lending Taxes
DeFi creates more taxable events than most people realise. Depositing into a lending protocol, earning interest, providing liquidity, and getting liquidated can each trigger separate tax events - though the exact treatment varies by protocol design, jurisdiction, and individual facts.
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Nearly every DeFi interaction involves swapping one token for another, and that swap is a disposal for tax purposes. Here's how the main DeFi activities break down.
Deposits and withdrawals
When you deposit ETH into Aave and receive aETH, you're disposing of ETH and acquiring a new asset. That's a capital gains event on the ETH. When you withdraw, the reverse happens: you dispose of aETH and acquire ETH at its current market value, establishing a new cost basis.
Interest and yield
Interest earned from lending protocols is generally treated as taxable income at or near fair market value when received or claimed, though characterization varies by jurisdiction. This applies whether the interest accrues as additional receipt tokens or is claimed separately.
Liquidations
A liquidation is a forced disposal of your collateral at the liquidation price. It's a taxable event. If the liquidation price is below your cost basis, the resulting loss may be deductible.
Liquidity pools (Uniswap, Curve)
Adding tokens to an LP is generally treated as a disposal of both tokens. Removing liquidity is generally treated as an acquisition at current prices. LP fees and reward tokens are commonly treated as taxable income when received, though LP tax treatment is not settled law in most jurisdictions and no tax authority has issued definitive LP-specific guidance.
Yield farming rewards
Reward tokens (COMP, CRV, SUSHI, etc.) received for staking LP tokens or participating in incentive programs are generally treated as taxable income at fair market value when claimed, depending on jurisdiction and the structure of the program.
Receipt tokens (aETH, cDAI, stETH)
Receipt tokens have a cost basis equal to the value of your original deposit at the time of deposit. When you dispose of the receipt token, the capital gain is the difference between its current value and that original deposit value.
How DYOR.tax handles DeFi taxes
- Add your EVM wallet address. The scanner covers 41+ chains including Ethereum, Arbitrum, Optimism, Base, Polygon, and more.
- Protocols auto-detected. Aave deposits and withdrawals, Compound interactions, Uniswap LP positions, Curve pools, Lido staking, MakerDAO vaults, and 8,000+ more.
- Events classified. Each interaction is categorised: deposit = disposal, interest = income, liquidation = loss, LP entry/exit = disposal/acquisition.
- Merged with exchange data. All DeFi activity is combined with your exchange CSV into one unified report with cross-source transfer detection.
Country-specific DeFi tax rules
United States
The IRS has not issued DeFi-specific guidance as of 2025. General principles apply: every token-to-token swap is generally a taxable disposal. Depositing into a lending protocol and receiving a receipt token is commonly treated as a disposal, though this depends on the protocol structure. Interest income is generally taxable as ordinary income. Report disposals on Form 8949 and income on Schedule 1.
United Kingdom
HMRC applies the same disposal rules. Section 104 pooling means your DeFi receipt tokens enter a separate pool from the underlying asset. Interest and yield are miscellaneous income. Bed-and-breakfast rules can apply to DeFi deposit/withdrawal cycles within 30 days.
HMRC conducted a consultation on the tax treatment of DeFi lending and staking in 2022. As of 2025, final legislation has not been enacted. Current guidance treats DeFi transactions under existing crypto disposal and income rules.
Canada
The CRA treats token swaps (including DeFi deposits) as disposals. Interest is income on your T1. Capital gains on Schedule 3. The superficial loss rule may apply if you re-enter the same position within 30 days.
Australia
The ATO generally treats token swaps as CGT events. Interest and yield farming rewards are commonly reported as assessable income. The 12-month CGT discount may apply to DeFi positions held longer than a year before disposal.
Common mistakes
- Forgetting that deposits are disposals. Moving ETH into Aave isn't just "parking" it. Receiving aETH is a token swap, and the ETH disposal is taxable.
- Ignoring LP impermanent loss. Impermanent loss isn't directly deductible. The tax impact shows up when you remove liquidity and the tokens you receive back differ from what you deposited.
- Not tracking yield farming rewards. Claiming COMP or CRV tokens is income, even if you immediately stake them again. Each step is a separate event.
- Double-counting DeFi and exchange activity. If you bridge tokens between an exchange and DeFi, make sure the transfer isn't counted as a disposal. DYOR.tax handles this with cross-source self-transfer detection.